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The Reservation Wage Unemployment Duration Nexus *
Author(s) -
Addison John T.,
Machado José A. F.,
Portugal Pedro
Publication year - 2013
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2012.00717.x
Subject(s) - duration (music) , reservation , nexus (standard) , unemployment , economics , reservation wage , simultaneity , wage , labour economics , demographic economics , econometrics , macroeconomics , political science , law , computer science , physics , classical mechanics , acoustics , embedded system
A thorny problem in identifying the determinants of reservation wages and particularly the role of continued joblessness in their evolution is the simultaneity issue. We deploy a control function approach to the problem that involves conditioning elapsed duration on completed unemployment duration in the reservation wage equation. Our analysis confirms that the use of elapsed duration alone compounds two separate and opposing influences. Only with the inclusion of completed duration is the negative effect of continued joblessness on reservation wages apparent.